Fundrise Private Credit: A Comprehensive Investment Guide

Fundrise Private Credit offers a unique investment opportunity that combines the benefits of real estate investing with the stability of a fixed income stream.

Investors can earn a potential average annual return of 8-12% through Fundrise Private Credit, which is a significant increase over traditional savings accounts or bonds.

This investment option is designed for those seeking a more diversified portfolio and a regular income stream.

By investing in Fundrise Private Credit, you can potentially earn more than what you would with a traditional savings account or certificate of deposit.

Fundrise Private Credit allows you to invest in a pool of loans to real estate developers and property owners, providing a more stable source of income than individual property investments.

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Fundrise Private Credit is a type of investment that allows individuals to lend money to real estate developers and property owners.

It's offered by Fundrise, a real estate investment platform that provides access to exclusive investment opportunities.

Investors can earn returns on their investment in the form of interest payments.

Investment periods vary, but some loans have terms as short as 6 months.

Investors can earn returns ranging from 8-12% per annum.

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High yields are a major draw for private credit investments, especially in today's economic climate. Private credit's potential for high yields can be a significant advantage over traditional investments.

The relative risk of private credit investments hasn't increased proportionately with yields, and in some cases, the risk profile has even improved. This is because the private credit market is capturing not just higher-risk borrowers but also those that are relatively stable.

Investing in private credit requires a high level of diligence, especially when it comes to understanding the legalities and options available when a borrower defaults. Traditional lending institutions have likely declined many private borrowers because of their risk.

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The current economic climate presents an attractive investment opportunity in private credit. With inflation peaking at 9.1% in mid-2022 and now at ~3.3%, mortgage rates and interest have remained stubbornly high, making it only a matter of time before mortgage rates decline.

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Investing in a diversified fund like Fundrise is a great way to take advantage of this dislocation in the markets. Fundrise began in 2012 and now manages over $3.3 billion for 500,000+ investors, making it a long-time sponsor of Financial Samurai and an investor in Fundrise funds.

Private credit has become more accessible to individual investors due to regulatory changes and the emergence of crowdsourced platforms like Percent, Yieldstreet, and Fundrise. This shift towards private credit is part of a larger trend in the investment world, with alternative investments representing over 25% of global pension portfolios in 2019.

The private credit market offers high yields, especially in the current economic climate, which is marked by rapid interest rate changes and a decline in traditional bank lending. As a result, businesses that would have previously been approved by banks are now available as opportunities in the private credit market.

Traditional lending institutions have likely declined many private borrowers due to their risk, so there must be a high level of diligence performed when making such an investment. This diligence is especially important when it comes to understanding the legalities and options available when a borrower defaults.

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Fundrise's platform is considered safe and secure, using bank-level security to protect your personal and financial information.

Two-factor authentication is also offered for added security, giving you an extra layer of protection.

The platform's security measures provide peace of mind for investors, allowing them to focus on their investment goals.

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Interest generated from private credit is taxed as ordinary income, just like bond interest.

This means you'll need to consider the tax implications of your investment to ensure your after-tax returns align with your financial goals and risk tolerance.

Private debt funds are often tax-inefficient, so it's usually best to hold them in tax-advantaged accounts, especially if you're in a high tax bracket.

Retirement accounts can be a good fit for these funds, but you need to be in the withdrawal stage to take advantage of the income they generate in the short term.

If you invest outside of a retirement account, you'll need to carefully consider the tax implications of your investment.

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Investing in private credit can come with various fees, including management fees and performance fees, which can significantly impact your overall returns.

The average fees for private credit investments exceeded 3% according to a recent study by Cliffwater, a substantial difference from traditional investments.

Fundrise's fees are 0.85% annually for the investments themselves, along with a 0.15% advisory fee, which is 90% lower than traditional REITs.

You'll also find fees like a quarterly servicing / property management fee from 0 to 0.50% paid to Fundrise Servicing, LLC, and up to 1.50% of the gross proceeds from the liquidation of any of their equity investments in real estate.

These fees may be reasonable, but it's essential to understand the full range of fees paid by the companies you're investing in, especially when investing in Fundrise's complex web of inter-related entities.

Fundrise private credit has reported average annual returns ranging from 8.76% to 12.42% over the years.

The company's most recent full-year returns in 2018 came in at 9.11%, with $5.9 million in dividends paid out to investors.

Investors can expect a mix of periodic dividend payments and a longer-term equity upside in their investments.

The expected hold term for these investments is 5 years or more, with limited redemption options available if needed.

If you do need to sell your shares back early, be aware that you'll only get 97% of their value, resulting in a 3% fee for early redemption.

Fundrise loans have an average gross interest rate of 13% - 14%, with a target return of 12% - 13% net of fees for the fund.

The average duration of each loan is between three-to-four years, with the option for borrowers to prepay after a year without penalty.

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Fundrise's investment products are offered under Reg A+, which involves a range of SEC requirements, disclosures, and filings. This regulatory framework is designed to protect investors.

Fundrise's REITs and funds are "blind pool" investments, meaning investors can't opt-out of particular properties and are relying on Fundrise's judgment about which properties to acquire. This can be a risk for investors.

The use of Reg A+ also means that Fundrise is arbitrarily determining the price of shares in their REITs/funds, rather than having an independent valuation. This could affect the price at which investors receive their proceeds upon liquidation.

Investors should be aware that this is not the only real estate investment crowdfunding choice that doesn't involve a broker-dealer review. Fundrise's model does reduce the sales commission, but there are potential side effects to consider.

Fundrise is a pioneer in the investment crowdfunding ecosystem, continually innovating and evolving into a real-estate oriented robo-advisor.

They offer a range of real estate investment products, including commercial and residential options, and have originated more than $350 million in equity and debt investments across over $1.9 billion in real estate property.

Fundrise is known for its aggressive growth strategy, focusing on reaching younger investors who invest relatively small amounts, and its marketing efforts are highly effective, with a modern and approachable website.

Their average loan duration is between 3-4 years, according to Fundrise CEO Ben Miller, and they lend to property developers who need to bridge the remaining loan need for their projects.

Fundrise has raised over $12 million from individual investors using Reg A+, and their opportunistic credit product helps property developers who face higher borrowing costs due to rising mortgage rates.

Developers can take out 2-5 year loans, which become investments in the opportunistic credit product, allowing them to continue their projects without losing everything.

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Fundrise's opportunistic credit product is designed to help property developers bridge the gap in funding due to rising mortgage rates. This product is particularly useful for developers who need to complete ongoing projects.

The average duration of the loan is between 3-4 years, according to Fundrise CEO Ben Miller. This allows developers to secure the necessary funding to complete their projects.

Fundrise lends money to property developers and sponsors with good projects whose loans have become variable, providing a vital source of funding for those in need.

The Fundrise opportunistic credit product is designed to help property developers bridge the remaining loan need for their projects. Due to a rapid rise in mortgage rates since 2022, developers are facing higher borrowing costs and existing lenders are pulling back.

Developers will take out a 2-5 year loan, which becomes an investment in the opportunistic credit product, with an average duration of 3-4 years. This loan becomes an investment in the fund, allowing investors to earn returns.

The average gross interest rate for a Fundrise loan is between 13% – 14%, resulting in a target return of 12% – 13% net of fees for the fund. This is a competitive return for investors.

The target term for holding the investment is 5 years, with no liquidity before then. This means investors should be prepared to hold the investment for at least 5 years to achieve the target returns.

Investors can expect quarterly distributions, providing regular income. The asset management fee is 1.75%, which is a relatively low fee for a fund of this type.

When looking at Fundrise, it's worth comparing it to other platforms. Fundrise offers real estate, private credit, and venture capital as available asset types.

Fundrise has a minimum deposit of $10, which is a relatively low barrier to entry. You can start investing with a small amount of money.

The stock trade fee for Fundrise is not specified, but we know that the Finder rating is 3.5 / 5, indicating a good overall rating. Fundrise has a Finder rating of 3.5 / 5, which is a decent score.

Finder's rating system awards 5 stars for the best platforms, and Fundrise received 4 out of 5 stars. Fundrise is a solid choice, but there may be other options that better suit your needs.